Europe’s convergence game – between the Cold War and the euro
The Cold War and the euro are, when you come to think of it, more or less the same thing.
by David Marsh
Mon 11 Jul 2011
When the European single currency was introduced in 1999, German Chancellor Helmut Kohl hyped it as “a question of war and peace.” Given the parallels, it’s hardly surprising that politicians and central bankers throughout the euro crisis have frequently turned to the language of “mutually assured destruction” to try to get their way.
The idea is simple. To persuade others to avoid certain courses of action that would allegedly provoke awful consequences. So it’s back to the Cold War. The presumption was, if either the Soviet Union or the U.S. launched a nuclear strike, this would automatically trigger a deadly blow to the assailant. Neither side wished to snuff itself out. So a nuclear attack was never unleashed. Nuclear deterrence gained the upper hand.
We see the same principles today. The Greek central bank governor told his country’s parliamentarians a couple of weeks ago that rejecting EU and IMF austerity measures would amount to “suicide.” Hey presto, Greece desists (for the moment) from saying “No” and nods the measures through. Similarly, feisty European Central Bank board member Lorenzo Bini Smaghi tells any wayward euro member thinking of debt restructuring that such an initiative would bring “political suicide.” So far they haven’t done it.
Such arguments are advanced, too, to convince European bankers to extend further loans to insolvent states. Otherwise we’ll all be down the drain. In the same way, a senior German government official told me some time ago that staying in monetary union was the only way for Greece to stave off a new military dictatorship. Angela Merkel and Nicolas Sarkozy use every opportunity to protest that dismantling the euro would ruin Europe. Merkel’s pet phrase is: “If the euro fails, Europe fails.” A throwback to the classic language of superpower conflict.
Such imagery may be superficially helpful. It gets politicians, technocrats and bankers to pass certain decisions and “gains time.” But such language is certainly not healthy. A number of hasty decisions in the last 15 months, aimed at staving off what were imagined to be catastrophic outcomes, have brought little in concrete results apart from weakening the status and credibility of the institutions that carried them out. I mean the ECB, the IMF, the Brussels commission and the German government. Quite a list.
Threats that unorthodox action would cause Armageddon are running increasingly thin. No one thinks, for example, that if Greece did default on its debts, the ECB really would refuse to accept all Greek paper as collateral. And Jan Kees de Jager, the Dutch finance minister, admitted a few days ago that “a short-term rating event” ensuing from a mandatory Greek debt restructuring would not be such a bad outcome.
The outcome is that major institutions dealing with the euro crisis can no longer be trusted. For coping with future upheavals, this is extremely bad news.
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